Está en la página 1de 46

ANALYSIS OF FINANCIAL STATEMENTS

Final project
SUBMITTED TO

SIR KASHIF SAEED

SUBMITTED BY

SYED IMRAN HUSSAIN SHAH


(07 ARID 448)

RABIA JALIL
(07 ARID 440)

FANAR BATOOL
(07 ARID 420)

NEELAM SHEHZADI
(07 ARID 439)

ARID AGRICULTURE UNIVERSITY Page 1


Acknowledgment

I
Am extremely
thankful to Allah
Almighty who has
enabled me to complete this
report on time and in the manner
it was required. He provided me
the resources to capture the
knowledge and avail the
opportunities in the world. It is
also a matter of immense
pleasure for me to express my
gratitude to my Teacher
Sir.KASHIF SAEED who has been a
source of real inspiration for me.
His experiences formed an
important part in this report. His
guidance and encouragement
provided me a mean to step
ahead towards my objective in a
proper way. I also wish to
ARID AGRICULTURE UNIVERSITY Page 2
acknowledge the support of all
my friends, who helped in
completing this report. Without
their support and cooperation it
was not possible for me to
complete this report.

ARID AGRICULTURE UNIVERSITY Page 3


Report contents

Executive summary………………………......3

Cement industry……………………………4

Over view of Companies………………….12


• Lucky cement………………12
• Fauji cement………………..14

Organizational structure...……………….15

Financial evidences of both companies

Lucky cement……………………………..16

Fauji cement………………………………30

Conclusion………………………………..44

ARID AGRICULTURE UNIVERSITY Page 4


EXECUTIVE SUMMARY
This report is about financial analysis of 2 companies chosen from
cement sector. In this report we have shown that

ARID AGRICULTURE UNIVERSITY Page 5


CEMENT INDUSTRY
Unprecedented increase in furnace oil and electricity prices was the
major reason which had almost crippled down the entire cement
industry in Pakistan. The low demand of cement due to fall out of
overall economic crisis which started after mid nineties also claimed the
blooming growth of 7 per cent to a meager level of even less than 3 per
cent in the country. Consequently, the entire cement industry was
running much below of its capacity despite having a strong industry
base, this important sector had to suffer a loss of billions of rupees in the
year 1998-99.

TURNAROUND
The lady luck however started getting kind on this sick unit when the
decision makers took some bold and timely decision especially the
conversion of the cement industry from oil/gas to coal fired system
which proved cost effective in the real sense of the term. Those units
which were running in huge losses entirely changed their complexion
from losses into profits. However, the conversion of fuel system was not
only the major contributor for bringing a turnaround change in the
cement sector, there were some other forces which helped bring stability
in this important sector. And that was the increase in demand both on
local front as well as from war ridden Afghanistan where the
international community has undertaken the gigantic task of
reconstruction of Kabul and other war affected areas in that country.
In the year 2002, the cement sector has recovered its losses it had to
suffer in the past as all the cement units have performed admirably well.
The tremendous recovery achieved by the cement industry reflects in
the fact that out of the total 22 cement units listed with the stock
exchange, 18 have announced their financial results for the year 2002
with an aggregate net earnings of Rs948 million. This tremendous
recovery has reverted the cement sector into a profitable zone-certainly
a remarkable performance.

ARID AGRICULTURE UNIVERSITY Page 6


BENEFICIARIES
Despite being a rich country in terms of the basic components or
ingredients required for producing cement i.e. limestone, clay and
gypsum, it is unfortunate that the benefit of availability of all these
natural resources is not passed on to the consumers. It is the industry
which pockets the profit or the government which claims the lion's
share in the form of levies or taxation which are said to be the highest in
this region. As a result of making the industry as a source of profit or a
source of revenue by the owners or the government respectively the end
users are the real sufferers. This statement can be substantiated with the
fact that a cement bag of 50 kg is being sold at Rs160 in India as
compared to Rs220 or more in Pakistan. It is because of high price of
construction material, common man of an average income can only
dream of owning a house of his own in Pakistan despite the fact that
there is an annual demand for 6 million new housing units in
accordance with the growth in population. The existing slums and
rapidly increasing katchi abides especially in the urban areas of this
country are only because having a house is far beyond the affordable
means of the people belonging to average income group what to speak of
the people living below the poverty line. It has been a cruel joke with the
masses of this country that over the years, people at the helm of affairs
never tired to pronounce that the common man the real owners of the
resources of the country, but practically speaking all the resources were
distributed either on political considerations or to the favorites. Take the
example of Karachi where the state land at prime locations allotted to
the people belonging to political, religious or social pressure groups at a
throw away prices under the amenity clause. Today, these strategically
located lands are being used for high commercial gains in the form of
hospitals, schools, colleges, marriage halls or marriage gardens. Is there
anybody to check why these lands got allotted under the pretext for
public welfare is exclusively used for profits and profits alone? As a
result of non-availability of land at an affordable price to the common
man and high cost of building material including cement the main
component for construction, the construction industry had almost come

ARID AGRICULTURE UNIVERSITY Page 7


to a stand-still in the major cities. It is estimated that at least 80
affiliated industries were also badly affected due to crisis persisting in
the construction industry for the last 6-7 years.

TAXATION
Despite the fact that cement constitutes as one of the basic necessities for
shelter, the policy makers have subjected the cement sector to the
highest taxation in the region. The levy of General Sales Tax (GST) on
cement is Rs660 per ton in Pakistan as compared to Rs320 in India. The
excise duty is Rs1000 per ton of the cement which is 186 per cent higher
than India where it is Rs350 per ton. In the light of this tax regime, it is
said that Pakistan has one of the highest tax rates on cement in the
Asian region. The impact of such tax and duty structure has resulted in
almost 40 per cent increase in the cement price per 50 kg bag when
compared to India suppressing demand for Pakistan cement.

CONVERSION
Conversion from furnace oil plants to coal firing system has already
taken place in majority of the cement producing units which have
started getting high benefits but they are also reluctant to pass on the
benefit to the consumer on the pretext that the industry has suffered
great losses in the past due to high price of furnace oil hence unless the
losses of the past are recovered they are not in a position to pass on the
benefit to the end users. On the contrary, the experience shows that
whenever the prices of oil were increased the additional cost was always
passed on to the consumers; it is however up to the price control
authorities to safeguard the interest of the people.
While looking at the conversion process of the cement industry from
furnace oil to coal fired system, it comes to notice that Pioneer cement
was the first one to convert its cement plant to the coal firing system.
During financial year 2001, the company incurred a heavy loss of Rs284
million, which turned into a profit of Rs44 million in the financial year
2002. The conversion of furnace oil plant to coal fired system
significantly reduced the production cost of the company resulting in an
improved bottom-line. It is reported that the domestic coal is not of a
very high quality however the processing and blending the local coal
with the imported one can produce required heating content that is

ARID AGRICULTURE UNIVERSITY Page 8


much cost-effective than the furnace oil. The increase in coal usage
continues to lower the cost of production for manufacturers. Lucky
cement completely switched over to coal in late August this year while
DG Khan about to shift on the coal technology. Cherat will take a little
longer and the company will be able to fully convert to coal in March
2003. The benefit of this change is visible in the increase in gross profit
of the cement units.
The annual production of cement in Pakistan comes around 10 million
tons while total consumption of furnace account to Rs8.42 billion per
annum. On the contrary, the total cost of using coal comes to Rs5.5
billion which translates into a total saving of Rs2.8 billion due to the
conversion of the fuel system. Keeping average price of coal per ton with
a ratio of 70:30 and furnace oil cost at Rs842 per ton of cement as a
benchmark and assuming that the cement plant is fully converted to
coal firing system, the saving on cost per ton comes around Rs290. In
addition to this the whole cement sector will benefit due to the reduction
in production cost. However, the benefit can only be justified and
enjoyed when the end users would also be given their due share in the
larger interest of the economy, because reduction in price means
increase in economic activity.

ARID AGRICULTURE UNIVERSITY Page 9


CAPACITY
It may be recalled that in 1947, Pakistan had inherited 4 cement plants
having total installed capacity of 0.5 million tons. These four units at
that time were controlled by India. These inherited cement plants
however were closed when they come to their age after 50 years of their
operations. During early 30 years of independence, five cement units
were established with aggregate capacity of 3.2 million tons of
production. Among these units one was established in Hyderabad Sindh
in the public sector. It was called Zeal Pak and was set up in 1956.
Another unit in the public sector was known as Maple Leaf which was
established in the province of Punjab in the same year. Three units were
set up during 1965-66 in the private sector. These were Javedan in
Sindh, Gharibwal and Mustehkam in the province of Punjab. After
nationalization of industries in early seventies, cement industry
remained under the control of government till late seventies. During this
period, growth in demand of cement was around 7 per cent per annum,
whereas new capacities were not coming up to match with the demand.
Consequently, Pakistan had to start importing cement in 1976-77 and
continued to import cement till 1994-95.
After the change in the government in 1977, private sector was allowed
to establish cement plants. As a result of change in policy, seven projects
having capacity of 2.54 million tons were installed in private sector and
simultaneously, State Cement Corporation of Pakistan (SCCP) also
brought in 4 more units with a total capacity of 1.6 million tons.
Resultantly, the total capacity of the cement industry enhanced to the
level of 8.5 million tons by the end of 1990.
Those units came in the public sector were Thatta Cement in Sindh,
(1983), Dandot (Punjab) 1983, Kohat (NWFP) 1983 and D.G.Khan
(Punjab) 1985.
The units allowed in the private sector were Cherat (NWFP) 1985,
Pakland (Sindh) 1985, Attock (Balochistan) 1986, Dadabhoy (Sindh)
1988, Essa (Sindh) 1988, Fecto (Punjab) 1989 and Anwarzeb White
Cement (Sindh) 1988.
According to a report of ICMAP, in the early nineties, the SCCP was the
market leader hence the private sector had to pursue the policies of the
public sector in fixing the prices of cement. With more depreciated

ARID AGRICULTURE UNIVERSITY Page 10


plants in its fold, combined cost of production of plants of SCCP was on
lower side. They had a price mechanism whereby surplus profits of
depreciated plants were allocated to the new plants having higher
depreciation cost and financial changes. The level of cement prices fixed
by SCCP therefore remained on the lower side. With the privatization of
cement units after 1990, SCCP lost its control over the supply of cement.
At that time there was an acute shortage of cement in the Northern
areas of the country. In the first half of nineties, Pakistan had to import
cement which led to the increase in cement prices exorbitantly making
cement companies to earn very high profits. This tempted some of the
existing units like Cherat, Pakland, Dadabhoy, Ac Wah, D.G. Khan,
Maple Leaf and Kohat to go for expansion in their plants.
Simultaneously, 5 more new projects with aggregated capacity of 5
million tons came on the stream. As such, production capacity went up
to 16 million tons by the end of 2000. The five new units in the private
sector were Pioneer (Punjab) 1994, Lucky (NWFP) 1996, Askari
(NWFP) 1997, Fauji (Punjab) 1997 and Best Way (NWFP) 1998.

ARID AGRICULTURE UNIVERSITY Page 11


DEMAND
According to a survey, the average demand for cement in Pakistan was
increased at the rate of 7.2 per cent per annum to 1.97 million tons in
seventies. However the growth rate of cement consumption was arrested
at the end of 1980 to 6.8 per cent per annum. During nineties, the pace
of demand was accelerated to the level of 7.49 million tons which raised
the hopes of the industry that the demand will further grow to 14.73
million tons by the end 2000. However the hopes were dashed with the
beginning of the economic crisis mainly due to hopeless management of
the economy and excessive politicization in the economy and the
demand could reach much less than the expectations at a level of 9.91
million tons at the end of 2000. As against the decline in demand, the
production capacity of the cement industry jumped up to the level of 16
million tons by the end of 2000 leaving a huge idle capacity of over 6
million tons. The depressed economic conditions taken as the indicator
for demand of cement instilled a depressed thoughts amongst the
cement industry that under the prevailing conditions there was a little
hope for any positive change regarding increase in demand for the
cement in the country. However, the proverbial saying ""exception
always proves the rules" came true with the turnaround in the industry
as stated earlier. Cement consumption is taken as the representative
denominator of the state of development of any economy. Per capita
consumption of cement in Pakistan works out to 72 kg per head per
annum. This level of per capita consumption is rated as one of the lowest
in the world. As against 72 kg per capita consumption in Pakistan, the
per capita consumption of cement in India is estimated at 89 kg, Sri
Lanka 106 kg, Indonesia 139kg, Vietnam 126 kg, Turkmenistan 159 kg,
El Salvador 171 kg, Philippines 220 kg, Mexico 251 kg, Iran 274 kg,
Syria 369 kg, China 410 kg, Turkey512 kg, Thailand 600 kg, Malaysia
870 kg and Taiwan 1004 kg.

The industry has now entered into a new phase where the scale of
production and plant location will play a major role in determining the
profitability of the company. In past, the difference between the large
and small players was very thin which has now widened drastically and

ARID AGRICULTURE UNIVERSITY Page 12


may have a significant impact with respect to future performance of the
industry.

ARID AGRICULTURE UNIVERSITY Page 13


Over view of Companies
Lucky cement

The Vision

To be the market leader in domestic and exports from the Country by


supplying high quality cement at the most competitive rates with
customers’ satisfaction and discharge our social responsibilities for the
benefit of under privileged.

The Mission

To be the largest and fastest growing cement producer using state of the
art technology at the most competitive cost by utilizing our experience
for maximizing profits for our shareholders.

The Strategy

To be the leading exporter of cement from Pakistan for the regional


countries as well as to explore the other potential export markets. As a
part of future strategy, to explore investment possibilities out side
Pakistan in the cement industry to become global producer.

ARID AGRICULTURE UNIVERSITY Page 14


Lucky cement

ARID AGRICULTURE UNIVERSITY Page 15


Fauji cement
A longtime leader in the cement manufacturing industry, Fauji Cement
Company, headquartered in Islamabad, operates a cement plant at
Jhang Bahtar, Tehsil Fateh Jang, and District Attock in the province of
Punjab.

The company has a strong and longstanding tradition of service,


reliability, and quality that reaches back more than 10 years. Sponsored
by Fauji Foundation the Company was incorporated in Rawalpindi in
1992.

The Vision
To transform into a role model cement FCCL manufacturing Company
fully aware of generally accepted principles of corporate social
responsibilities engaged in nation building through most efficient
utilization of resources and optimally benefiting all stake holders while
enjoying public respect and goodwill”.

The Mission
“While maintaining its leading position in FCCL quality of cement
and through greater market outreach will build up and improve its
value addition with a view to ensuring optimum returns to the
shareholders”.

ARID AGRICULTURE UNIVERSITY Page 16


Organizational structure

ARID AGRICULTURE UNIVERSITY Page 17


LUCKY CEMENT
LIQUIDITY RATIOS
A fully liquidity analysis requires the use of cash budgets, but by
relating the amount of cash and other current assess to current
obligations, ratio analysis provides a quick, easy-to-use measure of
liquidity.

2006
Current ratio= Current Asset
Current Liabilities
= 4455494000
4752035000
Current ratio = 0.938 times

2007
Current ratio= Current Asset
Current Liabilities
= 5402678000
6352556000
Current ratio= 0.85 times

ANALYSIS:
Although in both years the position of the company to pay off its short
term debt is not very good. It is necessary for the company that its
current ratio remains above 1 time to meet its short term obligations
and in the case of lucky cement the current of year 2007 is declining
because the short obligations (liabilities) are increasing at a faster pace
than its current assets.

ARID AGRICULTURE UNIVERSITY Page 18


2006
Quick ratio= Current Asset- Inventory
Current Liabilities
= 4455494000 - 431418 000
4752035000
Quick ratio= 0.847 times

2007
Quick ratio= Current Asset- Inventory
Current Liabilities
= 5402678000-676256000
6352556000
Quick ratio= 0.744 times

ANALYSIS
Here the Quick Ratio of year 2007 is declining because company is
holding huge amount of inventory as compared previous year. The
quantitative sales of company in year 2007 is 4.64 mtpa against the last
year sale of 2.2 mtpa because there is a growth in Pakistani cement
industry and there is overall an increase in sale of the cement so that’s
why there is a need to hold much bigger amount of inventory as
compared to year 2006 and the quick ratio of both years is less than 1.

ARID AGRICULTURE UNIVERSITY Page 19


ASSET MANAGEMENT RATIOS
Asset Management Ratio tells us how efficient company utilizes its total
assets for generating sales.

2006
Inventory turnover = Sales .
Avg inventory
= 8054101000
431418000
Inventory turnover= 18.669 times

2007
Inventory turnover = Sales .
Avg inventory
= 12521861000
676256000
Inventory turnover= 18.516 times

ANALYSIS:
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turn over of year 2006 but as the whole cement
industry is growing and the company is maintaining a big amount of
inventory as compare to the inventory of year 2006 so that’s why the
inventory turnover is decreasing and the inventory turnover ratio of
year 2006 was 18.669 which indicates that 18.669 times in a year the
inventory of the firm is converted into receivables or cash. However, in
2007, the inventory turnover ratio decreased to 18.516. This was due to
the fact that the company, in 2007, invested more in inventory as
compared to previous year.

ARID AGRICULTURE UNIVERSITY Page 20


2006
Average collection period = Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 98389000+83912000

= 182301000
Average collection period = 182301000 * 365
8054101000
Average collection period = 8.262 days

2007
Inventory turnover = Sales
Avg inventory
= 12521861000
676256000
Inventory turnover= 18.516 times

ANALYSIS
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turn over of year 2006 but as the whole cement
industry is growing and the company is maintaining a big amount of
inventory as compare to the inventory of year 2006 so that’s why the
inventory turnover is decreasing and the inventory turnover ratio of
year 2006 was 18.669 which indicates that 18.669 times in a year the
inventory of the firm is converted into receivables or cash. However, in
2007, the inventory turnover ratio decreased to 18.516. This was due to
the fact that the company, in 2007, invested more in inventory as
compared to previous year.

ARID AGRICULTURE UNIVERSITY Page 21


2006
Average collection period = Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 98389000+83912000

= 182301000
Average collection period = 182301000 * 365
8054101000
Average collection period = 8.262 days

2007
Average collection period= Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 476667000+176546000

= 653213000
Average collection period = 653213000 * 365
12521861000
Average collection period = 19.041 days

ANALYSIS:
Credit policy is defined as the maximum time period allowed to the
customer to pay back.
The average collection period in the year 2006 was 8.262 days which
means that the firm is able to collect its receivables within
approximately 10 days. However, in 2007, the average collection period
increased to 19.041 days, thus now the company is collecting its
receivable within approximately 20 days. There could be many reasons
for this increase in average collection period such as, problem in
management, lack of incentive given to its customers or undependable
customer.

ARID AGRICULTURE UNIVERSITY Page 22


2006
Fixed Asset turnover= Sales
Fixed Asset

= 8054101000
19165108000
Fixed Asset turnover = 0.42 times

2007
Fixed Asset turnover= Sales
Fixed Asset

= 12521861000
20318908000
Fixed Asset turnover = 0.616 times

ANALYSIS:
The fixed turnover ratio measures how effective the firm uses plant and
equipment. The role of fixed asset is to support the sales. The fixed Asset
turnover ratio of year 2007 is 0.616 times and in year 2006 was 0.42 this
shows that as the fixed asset increases there is also an increase in the
sales.

ARID AGRICULTURE UNIVERSITY Page 23


2006
Total Asset turnover= Sales
Total Asset
= 8054101000
23622777000
Total Asset turnover = 0.341 times

2007

Total Asset turnover= Sales


Total Asset
= 12521861000
25723761000
Total asset turnover = 0.487 times

ANALYSIS:
The final asset management ratio the total asset turn over ratio
measures the turnover of all the firm assets and help us to identify when
problem occur that is a problem in fixed assets or in current assets.. In
2006, it was 0.341 times and in year 2007 is 0.487 this change was
brought about by an increase of 55.5% in the sales. Where as the total
assets only increased by 8.8%.

ARID AGRICULTURE UNIVERSITY Page 24


DEBT MANAGEMENT RATIO
Shows the extent to which the firm is financed by debt.

2006
Debt ratio = Total Debt
Total Asset
= 16553144000
23622777000
Debt ratio = 70.1 %

2007
Debt ratio= Total Debt
Total Asset
= 16370211000
25723761000
Debt ratio = 63.6 %

ANALYSIS:
The debt to equity ratio in 2006 was 70.1% which shows that 70.1% of
financing through debt. However in 2007 the debt to equity ratio
decreased to 63.6% which shows that the company curtails its financing
through debts although there is an decline in the risk the company
facing but still the firm debt financing on the higher side as compared to
ideal situation which is 60% equity & 40% debt.

ARID AGRICULTURE UNIVERSITY Page 25


2006
Time interest earned= EBIT
Interest
= 2770075000
80458000
Time interest earned= 34.429 times

2007
Time interest earned= EBIT
Interest
= 3066113000
853399000
Time interest earned = 3.593 times

ANALYSIS:
Indicates a firm’s ability to cover the interest charges. The interest
coverage ratio was 34.429 in 2006 which have decreased to 3.593 in 2007
therefore the company are not able to cover the interest expense at a
higher margin of safety.

ARID AGRICULTURE UNIVERSITY Page 26


PROFITABILITY RATIOS
This ratio shows the combined effect of liquidity, asset management and
debt management ratios.

2006
Profit margin = Net income
Sales
= 1935950000
8054101000
Profit margin = 24%

2007
Profit margin = Net income
Sales
= 2547292000
12521861000
Profit margin = 20.3 %

ANALYSIS:
Profit margin of year 2007 declined because of the high cost which
occurs because of inefficient operations and heavy use of debt.

ARID AGRICULTURE UNIVERSITY Page 27


2006
Basic Earning Power= EBIT
Total Asset
= 2770075000
23622777000
Basic Earning Power= 11.7%

2007
Basic Earning Power= EBIT
Total Asset
= 3066113000
25723761000
Basic Earning Power = 11.9%

ANALYSIS:
This ratio shows the raw earning power of the firm asset before the
influence of taxes and leverage and it is useful for comparing firm with
difference tax situations and different degrees of financial leverage. The
BEP of year 2006 was 11.7 % which increased little bit in 2007 to 11.9%
the result shows that operating profit of year 2007 is growing bY1.1% .

2006
Return on Asset= Net income
Total Asset
= 1935950000
23622777000
Return on Asset = 8.19 %

2007
Return on Asset= Net income
Total Asset
= 2547292000
25723761000
Return on Asset = 9.9 %

ARID AGRICULTURE UNIVERSITY Page 28


ANALYSIS:
The Return on Assets gradually rose in year 2007, to 9.9% from 8.19%,
in year 2006. Total asset increased by 8.8%.This shows that the
company uses its total assets more efficiently over these years which also
increased net income over the years. This ratio shows that how much
company has earned on its assets.

2006
Return on equity = Net income
Common equity
= 1935950000
7069633000
Return on equity = 27.4%

2007
Return on equity= Net income
Common equity
= 2547292000
9353550000
Return on equity = 27.2%

ANALYSIS:
This ratio is the most important ratio for investor point of view. This
ratio shows that how much investors get return on their money that they
have invested in company stocks. If we compare the ROE of 2006 to
2007 there is a decline on ROE by 0.02% and this is not a good sign for
the investors to invest in company shares and this is also a threat to
Lucky cement because it is the goal of every company to maximize its
shareholders wealth.

ARID AGRICULTURE UNIVERSITY Page 29


MARKET VALUE RATIOS
It relates the firm’s stock price to its earning, cash flow, and book value
per share. These ratios give management an identication of what
investors think of the company’s past performance and future
prospects.

2006
Price per share / EPS = Price per share
EPS
= 127
7.35
Price per share / EPS = 17.279 times

2007
Price per share / EPS = Price per share
EPS
= 127
9.67
Price per share / EPS = 13.133 times

Analysis:
(P/E) ratio shows how much investor are willing to pay per Rupee of
reported profits. In comparison of 2006 and 2007 (P/E) ratio there is a
decline in (P/E) ratio by 4.146 times in 2007. This shows that there is a
weak growth prospect of the company and the company is much riskier
then other companies in the industry and the investors are not willing to
take risk.

ARID AGRICULTURE UNIVERSITY Page 30


2006
Market / Book value ratio = Market value per share
Book value per share

Book value = Common equity


No of outstanding shares
= 7069633000
263394558
= 26.840
Market/Book value ratio = 127
26.840

Market/Book value ratio = 4.732 times

2007
Market / Book value ratio = Market value per share
Book value per share

Book value = Common equity


No of outstanding of shares
= 9353550000
263422130
= 35.508
Market/Book value ratio = 127 .
35.508
Market/Book value ratio = 3.577 times

Analysis:
This ratio of stock’s market price to its book value gives another
indication of how investors regard the company. This ratio shows that
how much investor is willing to pay more for the stocks than their
accounting book value. As the M/B ratio is decline in 2007 to 3.577 times
this shows that investors willingness to buy the Lucky cement share is
decreasing and this also a bad sign for the Lucky cement company.

ARID AGRICULTURE UNIVERSITY Page 31


FAUJI CEMENT
LIQUIDITY RATIOS
A fully liquidity analysis requires the use of cash budgets, but by
relating the amount of cash and other current assess to current
obligations, ratio analysis provides a quick, easy-to-use measure of
liquidity.

2007
Current ratio= Current Asset
Current Liabilities
= 1, 953, 527000
1,442,287000
Current ratio = 1.35 times

2006
Current ratio= Current Asset
Current Liabilities
= 1, 579, 381000
1,267,198000
Current ratio= 1.24 times

ANALYSIS:
In both years the position of the company to pay off its short term debt
is good. It is necessary for the company that its current ratio remains
above 1 time to meet its short term obligations and in the case of Fauji
cement the current of year 2007 is incresing because the current assets
increased more than the current liabilities.

ARID AGRICULTURE UNIVERSITY Page 32


2006
Quick ratio= Current Asset- Inventory
Current Liabilities
=
Quick ratio= 1.13 times

2007
Quick ratio= Current Asset- Inventory
Current Liabilities
Quick ratio= 1.23 times

ANALYSIS
Here the Quick Ratio of year 2007 is increasing because company is not
holding huge amount of inventory as compared previous year.

ARID AGRICULTURE UNIVERSITY Page 33


ASSET MANAGEMENT RATIOS
Asset Management Ratio tells us how efficient company utilizes its total
assets for generating sales.

2006
Inventory turnover = Sales
Avg inventory
= 4,286,138,000
490,887,000
Inventory turnover= 8.731 times

2007
Inventory turnover = Sales
Avg inventory
= 3, 463, 283000/
479828000
Inventory turnover= 7.21times

ANALYSIS:
Inventory Turnover Ratio indicates the effectiveness of the inventory
management practices of the firm. The inventory turnover of year 2007
is less than the inventory turns over of year 2006; inventory turnover
ratio of year 2006 was 8.731 times which indicates that 8.731 times in a
year the inventory of the firm is converted into receivables or cash.
However, in 2007, the inventory turnover ratio increased to 7.21 times.
This was due to the fact that the company, in 2007, the sales of the
company decreased.

ARID AGRICULTURE UNIVERSITY Page 34


2006
Average collection period = Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 25, 475000+70, 339000

= 95814000
Average collection period = 95814000 * 365
4,286,138000
Average collection period = 8.15 days

2007
Average collection period= Account Receivable * 365
Sales
Account Receivables = Trade debts+ other receivables
= 19, 558000+858, 758000

= 878316000
Average collection period = 878316000 * 365
3,463,283000
Average collection period = 92.56 days

ANALYSIS:
Credit policy is defined as the maximum time period allowed to the
customer to pay back.The average collection period in the year 2006 was
8.15 days which means that the firm is able to collect its receivables
within approximately 9 days. However, in 2007, the average collection
period increased to 93.56 days, thus now the company is collecting its
receivable within approximately 94 days. There could be many reasons
for this increase in average collection period such as, problem in
management, lack of incentive given to its customers or undependable
customer.

ARID AGRICULTURE UNIVERSITY Page 35


2006
Fixed Asset turnover= Sales
Fixed Asset

Fixed Asset turnover = 0.97 times

2007
Fixed Asset turnover= Sales
Fixed Asset

Fixed Asset turnover = 0.81 times

ANALYSIS:
The fixed turnover ratio measures how effective the firm uses plant and
equipment. The role of fixed asset is to support the sales. The fixed Asset
turnover ratio of year 2007 is 0.81 times and in year 2006 was 0.97 this
shows that as there is a decrease in sales or the fixed assets are increased
but can’t boost up sales.

ARID AGRICULTURE UNIVERSITY Page 36


2006
Total Asset turnover= Sales
Total Asset
Total Asset turnover = 0.69times

2007

Total Asset turnover= Sales


Total Asset
Total asset turnover = 0.54 times

ANALYSIS:
The final asset management ratio the total asset turn over ratio
measures the turnover of all the firm assets and help us to identify when
problem occur that is a problem in fixed assets or in current assets..

ARID AGRICULTURE UNIVERSITY Page 37


DEBT MANAGEMENT RATIO
Shows the extent to which the firm is financed by debt.

2006
Debt to equity = Total Debt
Shareholder equity

Debt to equity = 0.60 times

2007
Debt to equity = Total Debt
Shareholder equity

Debt to equity = 0.38 times

ANALYSIS:
The debt to equity ratio in 2006 was 0.60 times which shows that debt is
0.60 times than equity. However in 2007 the debt to equity ratio
decreased to 0.38 which shows that the company curtails its financing
through debts although there is a decline in the risk the company facing
and the firm is to ideal situation which is 60% equity & 40% debt.

ARID AGRICULTURE UNIVERSITY Page 38


2006
Time interest earned= EBIT
Interest
= 2,041,984000
264,297000
Time interest earned= 7.72 times

2007
Time interest earned= EBIT
Interest
= 995,285000
207,105000
Time interest earned = 4.80 times

ANALYSIS:
Indicates a firm’s ability to cover the interest charges. The interest
coverage ratio was 7.72 in 2006 which have decreased to 4.80 in 2007
therefore the company are not able to cover the interest expense at a
higher margin of safety.

ARID AGRICULTURE UNIVERSITY Page 39


PROFITABILITY RATIOS
This ratio shows the combined effect of liquidity, asset management and
debt management ratios.

2006
Profit margin = Net income
Sales
Profit margin = 28.08 %

2007
Profit margin = Net income
Sales
Profit margin = 18.66 %

ANALYSIS:
Profit margin of year 2007 declined because of the high cost which
occurs because of inefficient operations.

ARID AGRICULTURE UNIVERSITY Page 40


2006
Basic Earning Power= EBIT
Total Asset
= 2,041,984000
6,198,107000
Basic Earning Power= 32.94 %

2007
Basic Earning Power= EBIT
Total Asset
= 995,285000
6,400,688000
Basic Earning Power = 15.54 %

ANALYSIS:
This ratio shows the raw earning power of the firm asset before the
influence of taxes and leverage and it is useful for comparing firm with
difference tax situations and different degrees of financial leverage. The
BEP of year 2006 was 32.94 % which decreased in 2007 to 15.54 %.

2006
Return on Asset= Net income
Total Asset
= 1,203,735000
6,198,107000
Return on Asset = 19.42 %

2007
Return on Asset= Net income
Total Asset
= 646,323000
6,400,688000
Return on Asset = 10.09 %

ARID AGRICULTURE UNIVERSITY Page 41


ANALYSIS:
The return has decreased from 19.42 % to 10.09 that means that the
assets are not efficiently used.

2006
Return on equity = Net income
Common equity
Return on equity = 28.70 %

2007
Return on equity= Net income
Common equity

Return on equity = 15.41%

ANALYSIS:
This ratio is the most important ratio for investor point of view. This
ratio shows that how much investors get return on their money that they
have invested in company stocks. If we compare the ROE of 2006 to
2007 there is a decline on ROE by 13.29% is not a good sign for the
investors to invest in company shares and this is also a threat to Fauji
cement because it is the goal of every company to maximize its
shareholders wealth.

ARID AGRICULTURE UNIVERSITY Page 42


MARKET VALUE RATIOS
It relates the firm’s stock price to its earning, cash flow, and book value
per share. These ratios give management an identication of what
investors think of the company’s past performance and future prospect

Earning per share


2006
EPS = total shareholder equity attributable to C/s
No of outstanding common stock

EPS = 3.25

2007
EPS = total shareholder equity attributable to C/s
No of outstanding common stock

EPS = 1.74

Analysis
Earnings per share ratio (EPS Ratio) are a small variation of return on
equity capital ratio and are calculated by dividing the net profit after
taxes and preference dividend by the total number of equity shares. As
its shows that the earning power of the company has decreased.

ARID AGRICULTURE UNIVERSITY Page 43


2006

DPS = dividends paid ÷ number of shares in issue

DPS = 1.50

2007
DPS = dividends paid ÷ number of shares in issue

DPS = nil

Analysis
Dividend per share (DPS) is a simple and intuitive number. It is the
amount of the dividend that shareholders have (or will) receive for each
share they own. The company paid dividend in 2006 but in 2007 it
didn’t paid any dividend.

ARID AGRICULTURE UNIVERSITY Page 44


2006
Price per share / EPS = Price per share
EPS

Price per share / EPS = 19.38 RS

2007
Price per share / EPS = Price per share
EPS

Price per share / EPS = 20.09 RS

Analysis:
(P/E) ratio shows how much investor is willing to pay per Rupee of
reported profits. There is an increase in P/E ratio. This shows that there
is a little growth prospect of the company and the company is not much
riskier then other companies in the industry and the investors are
willing to take risk.

ARID AGRICULTURE UNIVERSITY Page 45


Conclusion

ARID AGRICULTURE UNIVERSITY Page 46

También podría gustarte